States’ threat to block PM’s power plan

Prime Minister Julia Gillard says consumers have paid “too much for too long due to the gold-plating of networks and overinvestment in poles and wires”. Photo: Alex Ellinghausen

James Massola, Katie Walsh and Marcus Priest

Liberal states could block Prime ­Minister Julia Gillard’s plan to cut elec­tricity prices by reducing over ­investment in poles and wires, criticising key elements of Labor’s reform blueprint, including a rollout of smart meters, time-of-use pricing and a beefed up energy market regulator.

Ms Gillard pitched directly to households on Sunday
, announcing a number of measures designed to tackle rising electricity prices that she would push for at Friday’s Council of Australian Governments meeting, to save households up to $250 a year on their electricity bills.

But the Prime Minister has stopped short of endorsing calls from The Grattan Institute and Productivity Commission for more substantial reforms, including the sale of state-owned electricity assets. The NSW, Victorian and Queensland state governments immediately criticised the measures, calling for the Australian Energy Regulator to be granted independence from the competition regulator to be a genuine “tough cop on the beat” to protect consumers.

NSW, Queensland object to smart meters

NSW and Queensland also criticised the call for a national rollout of smart meters, with the Sunshine State warning a roll out would cost about $1 billion in that state alone. And NSW joined federal opposition environment spokesman Greg Hunt in calling for the carbon tax and other green schemes to be scrapped, at an ­annual saving of $270 per household.

The Energy Networks Association said previous state governments in NSW and Queensland had sharply raised network reliability through ­substantial investment but at a “considerable cost”.

Ms Gillard’s decision to reopen the political stoush over power prices with state governments is designed to ease pressure on her government over the carbon tax and spread the blame to state counterparts and draw them into a cost of living debate for allowing the “gold plating” of electricity networks so they can cope with peak demand, but at a high cost to power consumers.

However, with strong opposition from the states, Ms Gillard may struggle to reach agreement with COAG over her plans.

Gillard flags $2-3bn saving in overinvestment

She said the proposed changes to electricity network investment in poles and wires could save between $2 billion and $3 billion in overinvestment over the next five years, and urged the states to adopt a plan the Productivity Commission had found would result in families paying $250 less annually.

Ms Gillard also promised an extra $23 million to increase the AER’s staff levels, the creation of a Consumer Challenge Panel within the regulator to give consumers a strong voice and more choice for consumers. She also said she would push for states to agree to create a national consumer advocacy body.

“It will be a difference in what families would have otherwise paid. At the moment there are some real problems with the way our electricity pricing works, overinvestment in the poles and wires that cost families a lot,” she said.

She said a sell-off of electricity assets by the NSW and Queensland governments was not a pre-condition of the plan and that the measures would remove the “perverse incentive” for power companies to spend more and pass on the costs to consumers.

“It’s about addressing the real drivers of high power prices – the over­investment, the so-called gold plating of the network, the fact that con­sumers don’t get enough of a say, empowering the regulator at the centre of this with more resources, and making sure too that we reward big electricity users, big businesses that moderate their consumption during peak time periods of pressure on the electricity network.”

‘Too many reviews’, says Grattan’s Tony Wood

Power bills have risen by an average of about 9 per cent this year because of the carbon tax, but by about 50 per cent over the past four years.

“We’ve had too many reviews,” the Grattan Institute’s Tony Wood writes in The Australian Financial Review today. “We can’t wait another five years to see if adjustments have us heading in the right direction. The evidence is compelling, the savings that should be delivered are substantial.”

Victorian Energy Minister Michael O’Brien said he supported extra funding for the AER because it did not have the “resources, expertise and independence to protect consumers”.

“It is time for the Commonwealth government to put consumers ahead of bureaucratic empires and remove the AER from the ACCC so it can really be the ‘cop on the beat’ for consumers,” he said.

His Queensland counterpart, Energy Minister Mark McArdle, said he had “major concerns” about the AER being nestled within the ACCC.

Acting NSW Energy Minister Katrina Hodgkinson said the regulator could only represent the long-term interests of consumers if it was independent of the competition regulator.

Mr McArdle said the consumer panel would not push prices down if it was “stacked with green groups” and called on Ms Gillard to release costings on how and when savings would start to kick in, noting that his own government’s estimates that installing smart meters in the state would cost about $1 billion.

That was about $500 apiece, compared with $100 for technology known as second generation meters, he said.

Carbon tax silence criticised

Ms Hodgkinson criticised the federal government for failing to list the carbon tax as a contributor to rising prices and said her government was “committed to doing everything possible” to stem price rises, citing new rebates, capped dividends, the scrapping of the solar panel scheme and more than $2.8 billion in savings ­identified from structural changes.

Australian Competition and Consumer Commission chairman Rod Sims questioned the criticism of the AER and the call from states to separate it from the ACCC. He also deflected criticism of state government-owned power companies for boosting spending on electricity networks at the expense of consumers.

Mr Sims said the rules regulating networks had created the problem and that it was strange to blame the regulator. “We are now going to the changes needed. Let’s see if those changes work before looking to the regulator,’’ Mr Sims said. It was clear that the greatest increase in network expenditure had come from government-owned energy companies, he said.

“I don’t have any doubt in saying that there would have been not any problems had those network companies been privatised. That’s pretty clear.

“However, now that the there has been a blowout in expenditure in both Queensland and NSW, the governments are using their ownership to reign in spending.

“You have to give them credit as owners for taking their ownership responsibility seriously.”

Wait for Productivity Commission: energy association

Energy Networks Association chief executive Malcolm Roberts said the Productivity Commission was part- way through a comprehensive review of network regulation benchmarking, which is due by April 2013.

“Governments should allow the commission to finish this important work before making any decisions,’’ Mr Roberts said.

He warned that lowering network reliability standards would deliver “little if any price relief”.

Greens leader Christine Milne welcomed moves towards time-of-use pricing, a rollout of smart meters and extra funding for the energy regulator but said Ms Gillard had missed an opportunity to use COAG to push for a national energy efficiency target.

Consumer group Choice welcomed the idea of a Consumer Challenge Panel, which will allow customers to question electricity businesses over escalating costs, because it would give consumers a greater voice in energy decision-making.

Choice chief executive officer Alan Kirkland said politicians should pay attention to households, who had identified electricity bills as their No.1 cost-of-living concern.

“Consumer interests are outgunned in the electricity market, where complex proposals from well-resourced energy businesses flow into soaring household bills,” he said.

“That’s why we support giving consumers a formal role in the decision-making process, and we also want to see resources to create a national voice for household energy users.”